RetireMentors

Investing

5 high-risk behaviors harmful to your retirement

Much like elite sports and other high-reward pastimes, professional investing is incredibly hard work. People train for years, take tests to earn licenses and then subject themselves to long days and nights just to make it to Wall Street.

Among the thousands who do, at least a few succeed — some wildly so. The outsize pay they enjoy guarantees the supply of raw brain power from top colleges. It’s a tide that never ebbs for the investment industry.

Riding along on that tide of talent are huge numbers of ordinary retirement investors. Some will be steered (mostly) right but many will be disappointed. While it's extremely difficult to outperform the market, retirement investors and their hired guns try just the same.

It's easy, if ultimately useless, to blame the market for bad things that might happen to your nest egg. And it's easier still to shift the blame than to look in the mirror, which is where retirement investors should start.

Are you taking risks you don't understand with your retirement? Here are five profiles of high-risk investor behavior. I'll pop the bubble on your next question right away. If even one of these behaviors seems familiar, it's time to reconsider your retirement plan:

1. You've ever gone to cash in a hurry

Did you sell it all ahead of the dot-com crash? Did you manage to avoid the 2008 debacle? That's great news. But here's the thing: If you were so nervous about your investment portfolio that you sold it all, you aren't a slick-and-savvy market-timer. You're just another ordinary investor taking far too many chances.

A diversified portfolio that matches your risk tolerance would never prompt so rash an action. Moreover, selling to cash is itself very risky. The market might instead head higher still, leaving you behind. Being all in cash isn't investing. It's reacting to fear.

2. You check your balances daily

Do you take your blood pressure daily? Your cholesterol level? Of course not. It's good to know the status of your basic health indicators on a regular basis, maybe once or twice a year. If you have a chronic health condition, maybe monthly.

Likewise, your long-term investments shouldn't be allocated in a way that pressures you to review them constantly. That's not investing. It's a slow-motion form of panic.

3. You don't open statements at all

Professionals like to say that bull markets climb a wall of worry. It might be added that retirement investors tend to ignore that wall of worry. Bull markets feel so good that they tune out completely.

Ignoring your investments can be a good long-term approach — if you are in a well-designed portfolio that rebalances itself and, over time, adjusts to match your age-based goals. Otherwise, you are likely to be that investor who only checks on things well after markets turn sour.

4. You have no clue what fees you pay

Actively-managed mutual fund fees average 1.3%. Financial advisers often tack another 1% or more on top. The problem is, fund fees alone will consume nearly a third of your potential return in just 10 years. You take on the financial risk while the money managers get paid, whatever the outcome.

Do you know how much you pay for your financial adviser? Do you know what you pay for the underlying funds he or she buys on your behalf? If not, that's a major red flag.

5. You bought funds during a boom and never looked back

Everyone has a go-to guru, that marquee name who beat the market for a few years running and ended up on the covers of business magazines as a result. What was that fund he ran? Is it still run by him, or has some team taken it over?

Investing strategies often are flavor-of-the-month, but that "month" can run on for two, three or four years in a row. Fashionable funds thus grow dramatically larger, drawing in more investor money and hiring on teams of analysts, all the while keeping the marquee name up top for marketing purposes. In time, though, even the most powerful investing idea is overwhelmed by copycats. Eventually, the edge is gone, though the fees remain.

Retirement investing should be a long-term plan of action, not day-to-day reactions to news and the market. Knowing the difference between trading and investing is the key to retiring on time with your savings not only intact but having grown at a healthy, sustainable rate of return.

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